Alternatives to our current over-priced and dysfunctional health insurance market are often biased, and thus limited, by our current operational and regulatory structure. These structures are so entrenched in our healthcare psyche that it makes it difficult sometimes to set these aside in our minds while entertaining how another approach might work.
If we view all alternative plans to replace the Affordable Care Act from the vantage point of “what is”, then there is little room for anything other than attempts at further regulating the problems away. If one presupposes that the current regulatory framework remains unchanged, indeed the same framework has served to suppress the very market we wish create, then of course that market will not be created.
The dilemma facing alternative healthcare plans being considered to replace the ACA is particularly evident when it comes to the issue of selling health insurance across state lines. A brief on this subject published by the American Academy of Actuaries in February of 2017 speaks to the the main challenges facing the advent of a viable interstate market for the sale of health insurance.
Lots to like and consider here. We need more details about how tax equalization in the group market vs the individual market will be handled. The expansion of uses and benefits of HSAs is robust and will go along way to establishing more ways to self-insure and less reliance on networks and government programs; both are a good thing. The flexible, market-friendly Interstate Market for Health Insurance Cooperative Governing of Individual Health Insurance Coverage will be a welcome change. Again, devil is always in the details. Stay tuned for more details and insightful analysis here on the Sovereign Patient; we will post them as available.
Effective as of the date of enactment of this bill, the following provisions of Obamacare are repealed:
- Individual and employer mandates, community rating restrictions, rate review, essential health benefits requirement, medical loss ratio, and other insurance mandates.
Protecting Individuals with Pre-Existing Conditions:
- Provides a two-year open-enrollment period under which individuals with pre-existing conditions can obtain coverage.
- Restores HIPAA pre-existing conditions protections. Prior to Obamacare, HIPAA guaranteed those within the group market could obtain continuous health coverage regardless of preexisting conditions.
Equalize the Tax Treatment of Health Insurance:
- Individuals who receive health insurance through an employer are able to exclude the premium amount from their taxable income. However, this subsidy is unavailable for those that do not receive their insurance through an employer but instead shop for insurance on the individual market.
- Equalizes the tax treatment of the purchase of health insurance for individuals and employers. By providing a universal deduction on both income and payroll taxes regardless of how an individual obtains their health insurance, Americans will be empowered to purchase insurance independent of employment. Furthermore, this provision does not interfere with employer-provided coverage for Americans who prefer those plans.
Expansion of Health Savings Accounts:
- Tax Credit for HSA Contributions
- Provides individuals the option of a tax credit of up to $5,000 per taxpayer for contributions to an HSA. If an individual chooses not to accept the tax credit or contributes in excess of $5,000, those contributions are still tax-preferred.
- Maximum Contribution Limit to HSA. Removes the maximum allowable annual contribution, so that individuals may make unlimited contributions to an HSA.
- Eliminates the requirement that a participant in an HSA be enrolled in a high deductible health care plan. This section removes the HSA plan type requirement to allow individuals with all types of insurance to establish and use an HSA.
- This would also enable individuals who are eligible for Medicare, VA benefits, TRICARE, IHS, and members of health care sharing ministries to be eligible to establish an HSA.
- Allowance of Distributions for Prescription and OTC Drugs o Allows prescription and OTC drug costs to be treated as allowable expenses of HSAs.
- Purchase of Health Insurance from HSA Account o Currently, HSA funds may not be used to purchase insurance or cover the cost of premiums. Allowing the use of HSA funds for insurance premiums will help make health coverage more affordable for American families.
- Medical Expenses Incurred Prior to Account Establishment o Allows qualified expenses incurred prior to HSA establishment to be reimbursed from an HSA as long as the account is established prior to tax filing.
- Administrative Error Correction Before Due Date of Return o Amends current law by allowing for administrative or clerical error corrections on filings.
- Allowing HSA Rollover to Child or Parent of Account Holder o Allows an account holder’s HSA to rollover to a child, parent, or grandparent, in addition to a spouse.
- Equivalent Bankruptcy Protections for HSAs as Retirement Funds o Most tax-exempt retirement accounts are also fully exempt from bankruptcy by federal law. While some states have passed laws that exempt HSA funds from being seized in bankruptcy, there is no federal protection for HSA funds in bankruptcy.
- Certain Exercise Equipment and Physical Fitness Programs to be Treated as Medical Care. Expands allowable HSA expenses to include equipment for physical exercise or health coaching, including weight loss programs.
- Nutritional and Dietary Supplements to be Treated as Medical Care o Amends the definition of “medical care” to include dietary and nutritional supplements for the purposes of HSA expenditures.
- Certain Providers Fees to be Treated as Medical Care o Allows HSA funds to be used for periodic fees paid to medical practitioners for access to medical care.
- Capitated Primary Care Payments o HSAs can be used for pre-paid physician fees, which includes payments associated with “concierge” or “direct practice” medicine.
- Provisions Relating to Medicare o Allows Medicare enrollees to contribute their own money to the Medicare Medical Savings Accounts (MSAs).
Interstate Market for Health Insurance Cooperative Governing of Individual Health Insurance Coverage:
- Increases access to individual health coverage by allowing insurers licensed to sell policies in one state to offer them to residents of any other state.
- Exempts issuers from secondary state laws that would prohibit or regulate their operation in the secondary state. However, states may impose requirements such as consumer protections and applicable taxes, among others.
- Prohibits an issuer from offering, selling, or issuing individual health insurance coverage in a secondary state: If the state insurance commissioner does not use a risk-based capital formula for the determination of capital and surplus requirements for all issuers. Unless both the secondary and primary states have legislation or regulations in place establishing an independent review process for individuals who have individual health insurance coverage; or The issuer provides an acceptable mechanism under which the review is conducted by an independent medical reviewer or panel.
- Gives sole jurisdiction to the primary state to enforce the primary state’s covered laws in the primary state and any secondary state.
- Allows the secondary state to notify the primary state if the coverage offered in the secondary state fails to comply with the covered laws in the primary state.
Private exchanges have been creating a buzz in the employer-sponsored health care marketplace. After a flurry of activity in 2013 and 2014 among large employers, many feel we have moved beyond the “early adopter” stage and are poised for broader acceptance. Private exchanges are becoming more commonplace with more organizations than ever before implementing exchanges or actively considering them.
Let’s go to the basics. Corporations are not people. They don’t feel pain. They don’t feel pleasure. In court they are treated as a person, but everyone understands this is a “legal fiction.” If you tax a corporation you are taxing a relationship. The burden of the tax ultimately falls on real people. If you regulate a corporation the burden falls on real people. If you subsidize a corporation, the benefits are realized by real people. This isn’t really economics. It’s just logic.
Yet, courtesy of a pointer from Aaron Carroll, this is a defense of the employer mandate that appeared in a recent commentary in JAMA:
“The core value undergirding the shared responsibility principle is the realization that all of the major stakeholders of the health care system must contribute something if comprehensive health care reform is to be accomplished. Stated differently, making the ACA work requires a measure of responsibility from consumers, hospitals, physicians, insurance companies, drug makers, medical device makers, home health agencies, labor, and—because of section 1513—large employers.”
In fact there are only three real stakeholders cited in the paragraph above: consumers, workers (labor) and physicians. Every other entity is a pass through organization. If you tax insurance companies for example, the ultimate burden of the tax doesn’t fall on some entity called “insurance company.” It falls on consumers (in the form of higher premiums) or employees (in the form of lower wages and benefits) or on shareholders (in the form of lower returns).
For that reason, the quoted passage is not reasoned analysis. It is sloppy rhetoric — the kind of rhetoric that one expects to hear from politicians, especially politicians on the left. One reason such rhetoric survives, 200 years after Adam Smith, is that economists don’t always know where the burden falls – especially in the case of a tax on a specific industry, such as insurance companies or device manufacturers.
However, there are two things that are fairly well established: (1) payroll taxes fall on workers and are a dollar-for-dollar substitute for employee compensation and (2) employee benefits – whether mandated or not — are a dollar-for-dollar substitute for wages.
This has eviscerated the normal working of a competitive market. When people are spending their own money, they are careful and prudent. When they spend other people’s money, however, they are not overly concerned about cost.
As a result, we have a needlessly expensive system. And because third-party payer requires lots of administration and paper work, bad government policies also have caused absurd levels of inefficiency.
Well, there’s one small piece of Obamacare that actually is helping to mitigate this problem. The law includes a so-called Cadillac tax that caps the special tax preference for fringe benefits (if your employer provides you a health insurance policy as part of your compensation, that type of income isn’t taxed, unlike your cash wages).
And that reform is having a positive impact. Here are some passages from aBloomberg story.
Large employers are increasingly putting an end to their most generous health-care coverage as a tax on “Cadillac” insurance plans looms closer under Obamacare. Employees including bankers at JPMorgan Chase & Co. (JPM) and college professors at Harvard University are seeing a range of moves to shift more costs to workers.…The tax takes effect in 2018, and employers are already laying the groundwork to make sure they don’t have to pay the 40 percent surcharge on health-insurance spending that exceeds $27,500 for a family or $10,200 for an individual. Once envisioned as a tool to slow the nation’s growing health-care tab, the tax has in practice meant higher out-of-pocket health-care costs for workers.
The last sentence in the excerpt, by the way, is economically illiterate.
The Cadillac tax will restrain health spending because it means higher out-of-pocket costs for consumers. They are going to have more authority and responsibility of how to spend their own money.
Think of this analogy. Will you eat more if I give you $25 to buy a meal or if I give you a pre-paid voucher for a $25 all-you-can-eat buffet?
If you’re a normal person, you’ll take the $25 cash, buy a meal for less than that amount, and save the extra money for something else.
But if you’re given a pre-paid voucher for the buffet, you’ll pig out because there’s no additional cost for consuming more items.
And the Bloomberg story includes evidence that giving consumers more control over their income is having the predicted positive effect.
The reason we have so many problems in health care is that almost everywhere we look, people face perverse incentives — patients, doctors, employers, employees, etc. When they respond to those incentives they do things that make costs higher, quality lower, and access to care more difficult than otherwise would have been the case.
At the root of those perverse incentives is bad public policy.
Pre-ObamaCare Distortions That Affected Important Choices
Insurance or Uninsurance? Because we were spending far more on free care for the uninsured than we were spending on subsidies for individually-purchased insurance, millions of people had an incentive to be uninsured.
Public or Private? Because we spent far more on such public programs as Medicaid and CHIP than we spent on subsidies for individually-purchased insurance, millions of people had an incentive to choose public insurance rather than private insurance.
Individual or Group? Because employer-provided insurance was generously subsidized through the tax law while individually-purchased insurance received almost no tax relief, the vast majority of people with private insurance had non-portable, employer-provided coverage.
Third-Party or Self Insurance? Because employer-provided insurance was liberally subsidized through the tax law while people’s ability to get similar subsidies for Health Savings Accounts (HSAs) was greatly restricted, people had too much of the former and too little of the latter. This in turn led to third-party payer domination of the entire medical marketplace and the elimination of real market-determined prices.
Choices in the Market for Risk Avoidance. Because normal market forces had been so completely repressed, outside the individual market real health insurance simply didn’t exist.
It’s a 2,700 page bill. There are 20,000 pages of regulations. Major provisions seem to change every other week. And despite Nancy Pelosi’s promise, four years after it passed most of us still aren’t sure about everything that’s in it.How can something like that possibly be fixed?It’s easier than you might suppose. Previously, I recommended four simple ideas:
Replace all the ObamaCare mandates and subsidies with a universal tax credit that is the same for everyone.
Replace all the medical savings accounts with a Roth Health Savings Account (after-tax deposits and tax free withdrawals).
Allow Medicaid to compete with private insurance, with everyone having the right to buy in or get out.
Denationalize and deregulate the exchanges and require them to institute change of health status insurance.
Clearly much more needs to be changed. But you could keep an awful lot of ObamaCare and still have a workable health care system by making these changes and these changes alone.In this post, I will describe all of the mechanical problems that would be solved with these four changes. In a subsequent post I will show that these changes would also get all the important economic incentives right.
After delaying the employer mandate to provide ObamaCare health insurance to all full time employees for a year, the administration has delayed the mandate for medium size business for a second year. It has also relaxed the mandate for large businesses (they only have to cover 70% of their workers the next year).
All of this is lawlessness of course. The statute clearly says that the mandate is supposed to kick in this year. So why is President Obama taking the extra-constitutional step of letting employers temporarily off the hook?
The reason is not hard to understand. Millions of workers are in danger of losing their jobs or their other fringe benefits (such as matches to a retirement savings plan) or being forced to work part-time. Many of them are employees of hotels, restaurants and large retail stores. And these workers just might take out their anger on Democratic candidates in next fall’s election. (more…)